Australia: Australia Adds Indemnities And Limitations Of Liability Under Unfair Contract Terms Regime

Last Updated: 9 May 2017
Article by Adam Salter, Nicolas Taylor and Prudence Smith

Recent amendments to the Australian Securities and Investments Commission Act 2010 (Cth) ("ASIC Act") and the Competition and Consumer Law Act (Cth) ("CC Act") extended the unfair contract terms regime, which previously covered only consumer contracts, to small business contracts. This was partly in response to a significant number of complaints being made to the Australian Competition and Consumer Commission ("ACCC") by small businesses, which could not previously be remedied under the Australian Consumer Law ("ACL"). Although only limited guidance has been provided, here we review the principles and issues found in prior actions and statements by the relevant consumer protection agencies and courts.

Companies entering agreements with small businesses in Australia should be aware of these new avenues for challenge to "unfair" contracts. They should ensure that they do not attempt to preclude all liability for losses and damage suffered as a result of their own conduct.

The Prohibition

For most purposes, the unfair contract terms regime is contained in Pt 2-3 of the ACL (Schedule 2 to the CC Act). The regime does not apply to financial services or contracts that are for financial products (as an equivalent regime for these is contained in the ASIC Act), or to small business contracts entered into or renewed prior to November 12, 2016.

In order for a term in a small business contract to breach the ACL, it must be part of a standard form contract, and it must:

  • Cause a significant imbalance in the parties' rights and obligations under the contract;
  • Be not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  • Cause financial or other detriment to a consumer or small business if relied upon.

The CC Act also provides, without limiting the generality of the prohibition, a list of 14 kinds of terms that may be unfair, including terms that permit, or have the effect of permitting:

  • One party (but not another party) to avoid or limit performance of the contract;
  • One party unilaterally to determine whether the contract has been breached or to interpret its meaning; and
  • A limitation on one party's right to sue another party.1

The Explanatory Memorandum to the Amendment Act states that between January 1, 2011, and December 31, 2014, there were 1,375 total complaints made by small businesses to the ACCC in relation to unfair contract terms (of which 115 complaints related to limitations of liability or restrictions on the right of the small business to enforce their rights under the contract).

Applicability to Limitations of Liability and Indemnities

There has been little case law considering limitation of liability or indemnity clauses in the context of these requirements, for either consumer contracts or small business contracts. However, the ACCC and other consumer protection agencies appear to have taken the approach that they will not consider such terms to be reasonably necessary where they seek to indemnify one party or impose liability on the other party for losses caused by the conduct of the advantaged party. Types of clauses that are likely to be found to be in breach of the regime are clauses that impose complete or unlimited liability on the small business or completely indemnify the other party for property damage or financial loss caused (or contributed to) by the other party, including as a result of negligence, willful acts, fraud or breach of contract.

Conversely, it is less clear whether clauses that exclude or limit liability for indirect or consequential loss will attract enforcement actions, as the courts have rarely considered whether they are reasonably necessary to protect the liable party's legitimate interests. This is possibly because section 64 of the ACL provides that a term of a contract is void to the extent that the term purports to exclude, restrict or modify any liability (including for reasonably foreseeable consequential loss) of a person for a failure to comply with a consumer guarantee (a separate regime under the ACL that does not apply to small businesses).

It is also unclear how the regime will be applied to indemnities or limitations on liability for injury or death, or for intellectual property infringement in small business contracts (terms that suppliers and service providers commonly include in their customer contracts). While terms that impose unlimited liability or an absolute indemnity for any injury, death or intellectual property infringement caused by either party in any circumstances are possibly not permissible, there is little guidance as yet (by the courts, Parliament or the consumer protection agencies) on how broad terms of this nature need to be in order to be held to be in breach of the CC Act.

Guidance from Court and Tribunal Decisions

Although not authoritative, two recent Victorian Civil and Administrative Tribunal ("VCAT") decisions provide some assistance. One of these, Ballard v Sebring Pty Ltd [2014] VCAT 1636, illustrates that a term is not unfair merely because it imposes no-fault liability; it must cause a significant imbalance in the parties' rights and obligations and must not be reasonably necessary to protect the legitimate interests of the party advantaged by the term. In this case, a term in a Europcar rental agreement for a commercial vehicle excluded cover for damage or third-party loss when the commercial vehicle is driven in reverse. The Tribunal considered that while the exclusion clause contained an imbalance in the parties' rights in contravention of the analogous Fair Trading Act 1999 (Vic), it was not satisfied that this imbalance was significant in terms of the contract as a whole, in part because the hirer could have opted to hire a smaller vehicle under an agreement that did not contain the exclusion clause.

Terms of Europcar's rental agreements were also found by the Federal Court to be unfair in ACCC v CLA Trading Pty Ltd [2016] FCA 377 under the ASIC Act. In this case, Europcar sought to impose no-fault liability on its customers and unlimited liability for any damage to the vehicle, loss of the vehicle as a result of theft and third-party loss. Gilmour J held that these terms created a significant imbalance in the rights of the parties and were not reasonably necessary in order to protect Europcar's legitimate interests. However, he stated that it was not the fact that the terms imposed no-fault liability that rendered them unfair; rather, it was the way in which those terms operated. In fact, he held that a clause that provided that the customer must pay all reasonable costs to return the vehicle to the same condition it was in at the start of the rental, regardless of fault, was not an unfair term.

However, a term that provided that the customer was always required to pay if there was damage, theft of the vehicle or third-party loss was held to be unfair. Gilmour J reached this conclusion by comparing the effect of the contract including the term and the effect it would have without it; if "no fault" liability was not imposed on the customer, he or she would be liable only if he or she was at fault under the ordinary principles of negligence.

In Director of Consumer Affairs Victoria v Backloads.com Pty Ltd [2009] VCAT 754, the Tribunal held the following terms to be unfair:

A term providing that the client accept "any financial detriment or other losses" and that the removalist "shall NOT be responsible or liable for such losses";

A term providing that the removalist shall not be liable for any loss or damage suffered by the client directly or indirectly caused by damage, loss or destruction to the goods whilst in the possession of the removalist in transit, storage or after delivery, including due to a misdelivery or carriage of the goods by a route other than the shortest or usual route; and

A term providing an indemnity against any action, claim, suit, fine or demand brought by any third party, the client or the contractor.

These terms were considered unfair because they had the object or effect of unreasonably limiting the removalist's liability for matters under the removalist's control, including for losses caused by the removalist's willful, fraudulent or negligent conduct. They also conferred an unreasonable benefit upon the removalist by purporting to exempt it from liability for its failure to provide the contracted services to an appropriate standard, and limited the consumer's right to sue the respondent.

The ACCC has also been successful in a recent action in the Federal Court against ByteCard Pty Ltd, a business that provides internet and fixed-line telephone and web-design services: Australian Competition and Consumer Commission v ByteCard Pty Limited (Federal Court of Australia, Jessup J, unreported, orders made July 24, 2013). According to the ACCC, four clauses in ByteCard's standard consumer contract were declared to be unfair contract terms, including one that allowed ByteCard to exclude liability and required the customer to indemnify ByteCard in any circumstance, even where there was no breach of contract and the damage may have been caused by ByteCard.

Guidance from Consumer Protection Agencies

The 2016 Unfair Contract Terms Guide ("Guide") for business-to-consumer transactions (which was developed by Australia's consumer protection agencies, including the ACCC and ASIC) provides several relevant anonymous case studies. One such example includes an analysis of a term of entry to a car parking site that stated that the operators "shall not in any circumstances be liable for any loss or damage" to a vehicle, including where the loss or damage is caused by the operator's negligence, fundamental breach of contract, misdelivery to an unauthorized person, theft or vandalism. The term also stated that if the limitation of liability does not apply, then the operator's liability is limited to $300. In this case, the car park operators acknowledged the terms were unfair and agreed to change them accordingly.

The Guide also cites a term of a motor vehicle repairer's contract that excludes liability for fire, loss or damage to the vehicle while under the control of the repairer. This limitation of liability was also considered too broad, because it would potentially eliminate liability even if the repairer drove the vehicle negligently and damaged it. A similar "condition of entry" to a stadium in Queensland, in which entrants assumed all risk of damage, loss and personal injury (fatal and non-fatal), including as a result of negligence, was also considered to be unfair.

Although the Guide applies only to business-to-consumer transactions, the ACCC has also stated that similar provisions in relation to small business transactions would also likely be found to be unfair under the amendments. For example, a term of an agreement between a small business and a removal company that states that the removal company accepts no liability for any loss arising in the move, including loss caused by the removal company's negligence, would be likely to raise concerns because it seeks to limit the small business's rights against the removal company.

Similarly, the Guide also analyses a contract between a small business and a larger business to provide architectural services, which contains a term that indemnifies the larger business against all loss and damage arising in relation to the project, including loss or damage caused by the larger business. This term is also likely to raise concerns, because such a wide indemnity creates a significant imbalance between the rights and obligations of the parties and does not appear to be reasonably necessary to protect the larger business's legitimate interests, according to the Guide.

During the transition period under the amendments, the ACCC conducted a review of 46 standard form contracts that included limited liability and indemnity clauses, across several industries. The relevant guidance can be summarized as follows:

  • Advertising: While not inherently unfair in advertising contracts, terms that make the advertiser liable for loss or damage caused by a publisher, or that unreasonably limit a publisher's liability, are likely to raise concerns.
  • Telecommunications: The ACCC's review raised concerns with "broad and overreaching limited liability clauses" that sought to exclude legal rights available under the ACL.
  • Retail Leasing: The ACCC raised concerns over indemnity clauses that appeared unreasonably broad, or indemnified landlords in circumstances where the landlord caused or contributed to the loss (including negligence).
  • Independent Contracting: The most common clauses that are potentially in breach are clauses that require the contractor to indemnify the larger business, even in circumstances where the larger business caused or contributed to the loss or damage. This includes terms that limit liability for specific conduct, such as noncompliance with occupational health and safety or reporting obligations, or damage to third-party property.
  • Waste Management: An example of an impermissible contract term is one that provides that the removalist would not be liable for loss or damage suffered by a small-business customer in circumstances where the removalist fails to provide services at scheduled times, or cancels or suspends the supply of those services.

Conclusion

Companies should be aware of this new avenue of recourse for small businesses when entering into agreements. They should ensure that they do not attempt to preclude all liability for losses and damage suffered as a result of their own conduct, including negligence, to avoid contravening the ACL.

Matthew Whitaker, a law clerk in the Sydney Office, assisted in the preparation of this White Paper.

Footnote

1. The full list of the kinds of terms in consumer contracts or small business contracts that may be unfair is contained in Section 25 of the ACL. These are:

1. Terms that permit, or have the effect of permitting, one party, but not another party, to avoid or limit performance of the contract, to terminate the contract, to vary the terms of the contract, to renew or not renew the contract, to vary the upfront price payable under the contract, to unilaterally vary the characteristics of the goods or services to be supplied under the contract, to unilaterally determine whether the contract has been breached or to assign the contract to the detriment of the other party without that party's consent;

2. Terms that penalise, or have the effect of penalising, one party, but not another party, for breach or termination of the contract;

3. Terms that limit, or have the effect of limiting, one party's vicarious liability for its agents, one party's right to sue another party, the evidence one party can adduce in proceedings related to the contract;

4. Terms that impose, or have the effect of imposing, the evidential burden on one party in proceedings related to the contract; and

5. Terms prescribed by the regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Adam Salter
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.